If your small business has employees working in North Carolina, you must pay the North Carolina unemployment insurance (UI) tax. This UI tax funds unemployment compensation programs for eligible employees. (In North Carolina, state UI tax is just one of several taxes employers must pay. Other important employer taxes not covered here include federal UI tax, and state and federal withholding taxes.)
Different states have different rules and rates for UI taxes. Here are the basic rules for North Carolina's UI tax.
As a North Carolina employer subject to UI tax, your small business must establish a North Carolina UI tax account with the North Carolina Division of Employment Security (DES). Once registered, you'll be issued a North Carolina unemployment insurance tax number. Both online and paper registrations use Form NCUI 604, Employer Status Report.
In general, a North Carolina for-profit employer is liable for state UI taxes if, during a calendar year, the employer either:
These are effectively the same rules that apply for liability under the Federal Unemployment Tax Act (FUTA). Different rules, not covered here, apply to agricultural workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.
UI tax is paid on each employee's wages up to a maximum annual amount. That amount, known as the "taxable wage base," increases each year slightly in North Carolina. Recently, it has been $29,600 (2023 figure).
By contrast, the UI tax rate for new employers, also known as the "standard beginning tax rate," has remained constant for many years at 1.000%. However, this rate is always subject to change. Established employers are subject to a lower or higher rate than new employers depending on an "experience rating." This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits.
Unlike other states, North Carolina also charges a 20% surtax for the state's Unemployment Insurance Reserve Fund in calendar years when the amount in the Unemployment Insurance Trust Fund does not equal or exceed $1 billion as of September 1 of the preceding calendar year. (N.C. Gen. Stat. § 96-9.7(b)).
State UI tax payments generally can be credited against your FUTA taxes. In most other states 100% of the payments can be credited. But in North Carolina, only 83.33% can be credited while the surtax for the Unemployment Insurance Reserve Fund is in effect.
In North Carolina, UI tax reports and payments are due by the last day of the month following the end of each calendar quarter. In other words, reporting and payments are due by the following dates:
N.C. Gen. Stat. § 96-9.15(d) requires an employer or an agent of an employer that reports wages for at least ten employees to file the Quarterly Tax and Wage Report in an electronic format. To file online, you'll need to create an online account with the DES and then log in to that account to file your report and make a tax payment.
You must post a notice (poster) regarding state unemployment insurance in a conspicuous place for all employees. The poster provides basic information about when employees may be eligible for UI benefits and who to contact if they become unemployed.
You can download Form NCESC 524 from the Business Posters section of the North Carolina Department of Labor website. Form NCESC 524 meets the legal requirements for the notice.
Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it's important that you don't misclassify an employee as an independent contractor.
If you misclassify an employee, you could be subject to penalties or fines.
You may decide that it's easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on only the most basic elements of North Carolina UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DES websites for the latest information.
In addition to state UI tax, employers have other responsibilities not covered in this article, such as federal UI tax, state and federal withholding taxes, and required reporting of new hires. Talk to a tax lawyer or employment attorney to learn more.